Booklet 6. Annual Financial Report For the year ended 30 June Contents. Page

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1 BetaShares Geared Australian Equity Fund (hedge fund) BetaShares U.S. Equities Strong Bear Hedge Fund - Currency Hedged BetaShares Geared U.S. Equity Fund - Currency Hedged (hedge fund) Annual Financial Report Contents Directors' report 2 Auditor's independence declaration 5 Statements of comprehensive income 6 Statements of financial position 7 Statements of changes in equity 8 Statements of cash flows 9 Contents of the notes to the financial statements Directors' declaration 32 Independent auditor's report to the unitholders 33 Page 1

2 Directors' report Directors' report The directors of BetaShares Capital Ltd, the Responsible Entity of the following managed investment funds (the "Funds"), present their report together with the annual financial report of the Funds for the year ended 30 June 2016 and the auditor's report thereon. Abbreviated Fund name Referred to in this document as Financial reporting period ARSN BetaShares Geared Australian Equity Fund (hedge fund) Geared Australian Equity Fund 1 July 2015 to 30 June BetaShares U.S. Equities Strong Bear Hedge Fund - Currency Hedged U.S. Equities Strong Bear Hedge Fund 1 July 2015 to 30 June (comparatives: 10 November 2014 to 30 June 2015) BetaShares Geared U.S. Equity Fund - Currency Hedged (hedge fund) Geared U.S. Equity Fund 1 July 2015 to 30 June (comparatives: 10 November 2014 to 30 June 2015) Responsible Entity The Responsible Entity of the Funds is BetaShares Capital Ltd (ABN ). The Responsible Entity's registered office and principal place of business is Level 11, 50 Margaret Street, Sydney, NSW Principal activities The principal activity of each Fund is to invest in accordance with the investment objective and guidelines as set out in the Fund's current Product Disclosure Statements (PDSs) and its Constitution. The Funds did not have any employees during the year. There were no significant changes in the nature of the Funds' activities during the year. Directors The following persons held office as directors of BetaShares Capital Ltd during or since the end of the financial year and up to the date of this report: David Nathanson (appointed 21 September 2009) Alex Vynokur (appointed 21 September 2009) Howard Atkinson (Appointed 2 March 2010, resigned 12 August 2015) Taeyong Lee (appointed 12 August 2015) Thomas Park (appointed 12 August 2015) Review and results of operations During the year, the Funds continued to invest in accordance with target asset allocations as set out in their governing documents in accordance with the provisions of the Funds' Constitutions. The results of operations of the Funds are disclosed in the statements of comprehensive income. The income distributions payable by each of the Funds are disclosed in the statements of financial position. The income distributions paid and payable by each of the Funds are disclosed in note 6 to the financial statements. Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Funds that occurred during the financial year. 2

3 Directors' report Directors' report Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect: (i) (ii) (iii) the operations of the Funds in future financial years, or the results of those operations in future financial years, or the state of affairs of the Funds in future financial years. Likely developments, risk management and expected results of operations The principal activity of each Fund is to invest in accordance with the investment objective and guidelines as set out in the Fund's current PDSs and its Constitution. The results of the Funds' operations will be affected by a number of factors, including the performance of investment markets in which the Funds invest. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Further information on likely developments in the operation of the Funds and the expected results of those operations have not been included in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Funds. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Funds in regards to insurance cover provided to either the Responsible Entity, directors or the auditor of the Funds. As long as the officers of the Responsible Entity act in accordance with the Funds' Constitutions and the Law, the officers remain indemnified out of the assets of the Funds against losses incurred while acting on behalf of the Funds. The auditor of the Funds is in no way indemnified out of the assets of the Funds. Fees paid to and interests held in the Funds by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of Funds' property during the year are disclosed in Note 17 of the financial statements. No fees were paid out of Fund property to the directors of the Responsible Entity during the year. The number of interests in the Funds held by the Responsible Entity or its associates as at the end of the financial year are disclosed in Note 18 of the fìnancial statements. lnterests in the Funds The movement in units on issue in the Funds during the year is disclosed in Note 3 of the financial statements. The value of the Funds' assets and liabilities is disclosed in the statements of financial position and derived using the basis set out in Note 2 of the fìnancial statements. Environmental regulation The operations of the Funds are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. 3

4 Directors' report Directors' report Rounding of amounts to the nearest thousand dollars The Funds are entities of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and in accordance with that Instrument, amounts in the financial report and the directors' report have been rounded off to the nearest thousand dollars or nearest dollar, unless otherwise stated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. This report is made in accordance with a resolution of the directors. David Nathanson Director Alex Vynokur Director Sydney 27 September

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6 Statements of comprehensive income Statements of comprehensive income Notes 30 June June June June June June $'000 $'000 $'000 $'000 $ 1 $ 1 Investment income Dividend and distribution income 4 7,535 1, ,992 - Interest income ,698 - Net gains/(losses) on financial instruments held at fair value through profit or loss 5 (3,401) 886 (7,097) - 471,912 - Foreign exchange gains/(losses) ,637 - Other operating income ,215 - Total net investment (losses)/income 4,150 2,480 (6,591) - 958,454 - Expenses Management fees 17 1, ,189 - Expense recoveries ,243 - Transaction costs ,180 - Other operating expenses Total operating expenses 1, ,637 - Operating profit/(loss) before finance costs for the year 2,849 2,173 (6,852) - 868,817 - Finance costs attributable to unitholders Finance costs - interest expense (2,517) (661) (61) - (120,075) - Distributions to unitholders 6 (3,984) (936) - - (59,089) - Change in net assets attributable to unitholders (total comprehensive income/(loss)) 3 (3,652) 576 (6,913) - 689,653 - The above statements of comprehensive income should be read in conjunction with the accompanying notes. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 2 For each Fund's financial reporting period refer to Note 1 6

7 Statements of financial position As at 30 June 2016 Statements of financial position Notes 30 June June June June June June $'000 $'000 $'000 $'000 $ 1 $ 1 Assets Cash and cash equivalents ,674-5,156,416 - Financial assets held at fair value through profit or loss 9 140,991 70, ,745,696 - Receivables 10 1, ,826 - Total assets 142,406 71,313 63,741-18,915,938 - Liabilities Borrowings 11 74,029 40,507 14,092-13,177,353 - Financial liabilities held at fair value through profit or loss Due to brokers Distributions payable 6 1, ,089 - Interest payable ,679 - Other payables ,801 - Total liabilities (excluding net assets attributable to unitholders) 75,757 41,139 14,207-13,261,922 - Net assets attributable to unitholders - liability 3 66,649 30,174 49,534-5,654,016 - The above statements of financial position should be read in conjunction with the accompanying notes. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 2 For each Fund's financial reporting period refer to Note 1 7

8 Statements of changes in equity Statements of changes in equity The Funds' net assets attributable to unitholders are classified as a liability under AASB 132 Financial Instruments: Presentation. As such, the Funds have no equities and no items of changes in equities have been presented for the current or comparative year. 8

9 Statements of cash flows Statements of cash flows Notes 30 June June June June June June $'000 $'000 $'000 $'000 $ 1 $ 1 Cash flows from operating activities Dividends received 6,596 1, ,992 - Interest received ,181 - Other income received ,215 - Foreign exchange gains/losses ,030 - Management fees paid (1,019) (252) (168) - (70,194) - Expense recoveries paid (104) (23) (29) - (7,437) - Transactions cost paid (24) (2) (7) - (2,180) - Other expenses paid (37) (7) (12) - (5,656) - Proceeds from maturity/sales of financial instruments held at fair value through profit or loss 144,226 16,000 (7,038) - 12,816,691 - Purchase of financial instruments held at fair value through profit or loss (217,635) (76,786) (1) - (26,090,474) - Net cash outflow from operating activities 8 (67,981) (59,787) (6,865) - (12,980,832) - Cash flows from financing activities Net proceeds of borrowings 33,522 35,083 14,092-13,177,353 - Proceeds from applications by unitholders 86,435 32,479 56,447-9,641,579 - Payments for redemptions by unitholders (46,310) (6,752) - - (4,677,216) - Distributions paid (3,228) (427) Interest paid on borrowings (2,438) (595) (61) - (120,075) - Net cash inflow from financing activities 67,981 59,787 70,478-18,021,641 - Net increase/(decrease) in cash and cash equivalents ,613-5,040,809 - Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations in cash and cash equivalents ,607 - Cash and cash equivalents at the end of the year ,674-5,156,416 - The above statements of cash flows should be read in conjunction with the accompanying notes. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 2 For each Fund's financial reporting period refer to Note 1 9

10 Contents of the notes to the financial statements Contents of the notes to the financial statements Page 1 General information 11 2 Summary of significant accounting policies 11 3 Net assets attributable to unitholders 17 4 Dividend and distribution income 17 5 Net gains/(losses) on financial instruments held at fair value through profit or loss 18 6 Distributions to unitholders 18 7 Cash and cash equivalents 18 8 Reconciliation of operating (loss)/profit to net cash inflow/(outflow) from operating activities 19 9 Financial assets and liabilities held at fair value through profit or loss Receivables Borrowings Other payables Financial risk management Fair value measurements Offsetting financial assets and liabilities Auditor s remuneration Related party transactions Events occurring after the reporting year Contingent assets and liabilities and commitments 31 10

11 1 General information These financial statements cover the following managed investment funds ("the Funds"). The Funds are registered managed investment schemes under the Corporations Act The Responsible Entity cannot issue or redeem any units from the 80th anniversary of the day before the day the Funds commenced if that issue or redemption would cause a contravention of the rule against perpetuities or any other rule of law or equity. The Funds may be terminated in accordance with the provisions of their Constitutions. The Funds are domiciled in Australia. Referred to in this document as Registration date Commencement date Financial reporting period Geared Australian Equity Fund 8 April April July 2015 to 30 June 2016 U.S. Equities Strong Bear Hedge Fund 10 November August July 2015 to 30 June 2016 (comparatives: 10 November 2014 to 30 June 2015) Geared U.S. Equity Fund 10 November August July 2015 to 30 June 2016 (comparatives: 10 November 2014 to 30 June 2015) The Responsible Entity of the Funds is BetaShares Capital Ltd (the Responsible Entity''). The Responsible Entity's registered office is Level 11, 50 Margaret Street, Sydney NSW The financial statements were authorised for issue by the directors of the Responsible Entity on 27 September The directors of the Responsible Entity have the power to amend and reissue the financial statements. The financial statements are presented in Australian dollars, which are the Funds' functional currency. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001 in Australia. The Funds are for-profit unit trusts for the purpose of preparing the financial statements. The financial statements are prepared on the basis of the fair value measurement of assets and liabilities except where otherwise stated. The Funds operated solely in one segment which is the business of investment management within Australia. The statements of financial position are presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non-current. All balances are expected to be recovered or settled within twelve months, except for investment in financial assets and net assets attributable to unitholders. Compliance with International Financial Reporting Standards (IFRS) The financial statements of the Funds also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Use of estimates The Funds make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 11

12 2 (a) Summary of significant accounting policies Basis of preparation Use of estimates For the majority of the Funds' financial instruments, quoted market prices are readily available. However, certain financial instruments are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and regularly reviewed by experienced personnel of the Responsible Entity independent of the area that created them. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For certain other financial instruments, including amounts due from/to brokers and payables, the carrying amounts approximate fair value due to the short-term nature of these financial instruments. Investment entity exception The Funds meet the definition of an investment entity and therefore apply the investment entity amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interest in Other Entities and IAS 27 Separate Financial Statement. IFRS 10 is applicable to all investees; among other things, it requires the consolidation of an investee if the Funds control the investee on the basis of de facto circumstances. An exception however exists where an entity meets the definition of an investment entity. The Funds meet the definition of investment entity due to the following factors: (a) the Funds obtain funds from one or more unitholders for the purpose of providing the unitholders with investment management services; (b) the Funds commit to their unitholders that their business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and (c) the Funds measure and evaluate the performance of substantially all of their investments on a fair value basis. In making the above assessments, the Funds have multiple investments and multiple investors. Their investors are generally unrelated parties of the Funds. Although all units attributable to unitholders are recognized as debt rather than equity, unitholders invest for returns from capital appreciation, investment income, or both. Directors of the RE have concluded that the Funds meet the definition of investment entity. Assessment of the Funds investments as structured entities The Funds have assessed whether the securities in which they invest are structured entities. The Funds have considered the voting rights and other similar rights afforded to investors in these funds, including the rights to remove the fund manager or redeem holdings. The Funds have assessed whether these rights are the dominant factor in controlling the funds, or whether the contractual agreement with the fund manager is the dominant factor in controlling these funds. The Funds have concluded that the managed investment funds in which they invest are not structured entities. (b) Changes in accounting policy and transition There were no changes in the accounting policies of the Funds during the financial period. (c) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting period and have not been early adopted by the Funds. The directors assessment of the impact of these new standards (to the extent relevant to the Funds) and interpretations is set out below: 12

13 2 (c) Summary of significant accounting policies New standards and interpretations not yet adopted - AASB 9 Financial Instruments (and applicable amendments) (effective from 1 January 2018) AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting. The directors do not expect this to have a significant impact on the recognition and measurement of the Funds' financial instruments. The derecognition rules have not changed from the previous requirements, and the Funds do not apply hedge accounting. The Funds have not yet decided when to adopt AASB 9. - AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards. The Funds' main sources of income are interest, dividends and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Funds' accounting policies orthe amounts recognised in the financial statements. There are no other standards that are not yet effective and that are expected to have a material impact on the Funds in the current or future reporting periods and on foreseeable future transactions. (d) (i) Financial instruments Classification The Funds' investments are classified as financial assets or financial liabilities, and are recognised at fair value through profit or loss. They comprise: Financial instruments held for trading These include futures. The Funds do not designate any derivatives as hedges in a hedging relationship. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and financial liabilities such as equity instruments and unit trusts that are classified as not held for trading purposes and which may be sold. Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Funds' documented investment strategies. The Funds' policy is for the Responsible Entity to evaluate the information about these financial assets on a fair value basis together with other related financial information. (ii) Recognition/derecognition The Funds recognise financial assets and financial liabilities on the date they become party to the contractual agreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities from this Investments are derecognised when the right to receive cash flows from the investments have expired or the Funds have transferred substantially all risks and rewards of ownership. (iii) Measurement Financial assets and liabilities held at fair value through profit or loss At initial recognition, the Funds measure a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statements of comprehensive income as incurred. 13

14 2 (d) (iii) Summary of significant accounting policies Financial instruments Measurement Subsequent to initial recognition, all financial assets and financial liabilities held at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the statements of comprehensive income within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value in an active market The fair value of financial assets and liabilities traded in active markets is subsequently based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. The quoted market price used for financial assets and liabilities is the last traded price. Fair value in an inactive market or unquoted market The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent at arms length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models or any other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (e) Net assets attributable to unitholders Units are normally redeemable only by unitholders being Authorised Participants at the unitholders' option (other unitholders only have a right to redeem units in special circumstances) and are accordingly therefore classified as financial liabilities. The units can be put back to the Funds at any time (subject to the Corporations Act 2001 and the Funds' Constitutions) for cash and/or in-kind based on the redemption price. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the end of the reporting period if unitholders exercised their right to redeem units in the Funds. (f) Cash and cash equivalents For the purpose of presentation in the statements of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. The carrying amount of cash approximates fair value. (g) Investment income Interest income is recognised in the statements of comprehensive income for all financial instruments that are not held at fair value through profit and loss using the effective interest method. Other changes in fair value for such instruments are recorded in accordance with the policies described in Note 2(d). Dividend income is recognised on the ex dividend date with any related foreign withholdingtax recorded as an expense. The Funds currently incur withholdingtax imposed by certain countries on investment income. Such income is recognised gross of withholding tax in the statements of comprehensive income. Distributions from listed managed investment funds are recognised as income on the date the unit is quoted ex-distribution with any related foreign withholding tax recognised as a tax expense. 14

15 2 (h) Summary of significant accounting policies Expenses All expenses are recognised in the statements of comprehensive income on an accruals basis. (i) Income tax Under current legislation, the Funds are not subject to income tax as unitholders are presently entitled to the income of the Funds. The benefits of any imputation credits and foreign tax paid are passed on to unitholders. (j) Distributions In accordance with the Funds' Constitutions, the Funds distribute income adjusted for amounts determined by the Responsible Entity, to unitholders by cash payment or reinvestment. The distributions are recognised in the statements of comprehensive income as finance costs attributable to unitholders. (k) Change in net assets attributable to unitholders Income not distributed is included in the net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in the statements of comprehensive income. (l) (i) Foreign currency translation Functional and presentation currency Items included in the Funds' financial statements are measured using the currency of the primary economic environment in which it operates (the "functional currency"). This is the Australian dollar, which reflects the currency of the economy in which the Funds compete for funds and are regulated. The Australian dollar is also the Funds' presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of comprehensive income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are reported in the statements of comprehensive income on a net basis within net gains/(losses) on financial instruments held at fair value through profit or loss. (m) Due from/to brokers Amounts due from/to brokers (if applicable) represent payables for securities purchased and receivables for securities sold that have been contracted for but not yet delivered by the end of the year. Trades are recorded on trade date, and normally settled within standard market settlement times (typically three business days). A provision for impairment of amounts due from brokers is established when there is objective evidence that the Funds will not be able to collect all amounts due from the relevant broker. Indicators that the amount due from brokers is impaired include significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation and default in payments. (n) Receivables Receivables may include amounts for dividends, interest and trust distributions. Dividends and trust distributions are accrued when the right to receive payment is established. Interest is accrued at the end of each reporting period from the time of last payment in accordance with the policy set out in note 2(g) above. Amounts are generally received within 30 days of being recorded as receivables. The carrying amount of receivables approximates 15

16 2 (n) Summary of significant accounting policies Receivables Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Funds will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. (o) Other payables Other payables include liabilities, amounts due to brokers and accrued expenses owing by the Funds which are unpaid as at the end of the reporting period. The distribution amount payable to unitholders as at the reporting date is recognised separately in the statements of financial position as unitholders are presently entitled to the distributable income. (p) Borrowings and interest expense Borrowings are recognised at historical cost where any transaction fees and costs directly related to the borrowings are recognised in the statements of comprehensive income over the expected life of the borrowings. Borrowings are classified as current liabilities where the liability has been drawn under a financing facility which expires within one year. Finance costs include interest expense related to the borrowings which are expensed in the statements of comprehensive income on an effective yield basis. (q) Applications and redemptions Applications received for units in the Funds are recorded net of any entry fees payable (if applicable) prior to the issue of units in the Funds. Redemptions from the Funds are recorded gross of any exit fees payable (if applicable) after the cancellation of units redeemed. (r) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Funds by third parties such as investment management fees have been passed onto the Funds. The Funds qualify for Reduced Input Tax Credits (RITC) at a rate of 55% to 85%; hence investment management fees, custodial fees and other expenses have been recognised in the statements of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the statements of financial position. Cash flows relating to GST are included in the statements of cash flows on a gross basis. (s) Rounding of amounts The Funds are an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and in accordance with that Instrument, amounts in the financial report and directors' report have been rounded off to the nearest thousand dollars or nearest dollar in accordance with that Instrument, unless otherwise indicated. 16

17 3 Net assets attributable to unitholders As stipulated within the Funds' Constitutions, each unit represents a right to an individual share in the Funds and does not extend to a right to the underlying assets of the Funds. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Funds (subject to applicable ASIC relief). Movements in number of units and net assets attributable to unitholders during the year were as follows: Net assets attributable to unitholders 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Opening balance 30,175 3, Applications 86,217 32,451 56,447-9,641,579 - Redemptions (46,309) (6,752) - - (4,677,216) - Units issued upon reinvestment of distributions Change in net assets attributable to unitholders (3,652) 576 (6,913) - 689,653 - Closing balance 66,649 30,175 49,534-5,654, June June June June June June 2015 Number of units: '000 '000 '000 '000 Opening balance 1, Applications 4,968 1,614 4,650-1,100,000 - Redemptions (2,700) (300) - - (500,000) - Units issued upon reinvestment of distributions Change in net assets attributable to unitholders Closing balance 3,795 1,515 4, ,000 - Capital risk management The Funds consider their net assets attributable to unitholders as capital, notwithstanding net assets attributable to unitholders are classified as a liability. The amount of net assets attributable to unitholders can change significantly on a daily basis as the Fund is subject to daily applications and redemptions at the discretion of unitholders. Daily applications and redemptions are reviewed relative to the liquidity of the Funds' underlying assets on a daily basis by the Responsible Entity. Under the terms of the Funds' Constitutions, the Responsible Entity has the discretion to reject an application for units and to extend the period allowed for satisfaction of redemption of units or reject or spread redemptions in specified circumstances. 4 Dividend and distribution income 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Trust distribution Dividend income 6,941 1, ,992 - Total 7,535 1, ,992-1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 17

18 5 Net gains/(losses) on financial instruments held at fair value through profit or loss Net (losses)/gains recognised in relation to financial assets and financial liabilities held at fair value through profit or loss: 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Net unrealised gain/(loss) on financial instruments held at fair value through profit or los 1,630 (214) (59) - 467,261 - Net realised (loss)/gain on financial instruments held at fair value through profit or loss (5,031) 1,099 (7,038) - 4,651 - Total net (losses)/gains on financial instruments held at fair value through profit or loss (3,401) 886 (7,097) - 471,912-6 Distributions to unitholders The distributions paid/payable for the year were as follows: 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Distributions Distribution paid - December 2, Distribution payable - June 1, ,089 - Total Distribution 3, , June June June June June June 2015 Cents per unit Cents per unit Cents per unit Cents per unit Cents per unit Cents per unit Distributions Distribution paid - December Distribution payable - June Total Distribution Cash and cash equivalents 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Cash and cash equivalents ,674-5,156, ,674-5,156,416-1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 18

19 8 Reconciliation of operating (loss)/profit to net cash inflow/(outflow) from operating activities 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Operating profit/(loss) for the year 2,849 2,173 (6,852) - 868,817 - Net (gains)/losses on financial instruments held at fair value through profit or loss 3,401 (886) 7,097 - (471,912) - Purchase of financial instruments held at fair value through profit or loss (217,635) (76,786) (1) - (26,090,474) - Proceeds from maturity/sales of financial instruments held at fair value through profit or loss 144,226 16,000 (7,038) - 12,816,691 - Gains on foreign exchange - - (61) - (115,607) - Net change in receivables (939) (318) (55) - 7,482 - Net change in payables and other liabilities ,171 - Net cash outflow from operating activities (67,981) (59,787) (6,865) - (12,980,832) - Non-cash financing and investing activities During the year, the following distribution payments were satisfied by the issue of units under the distribution reinvestment plan Financial assets and liabilities held at fair value through profit or loss 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Financial Assets Designated at fair value through profit or loss Listed equities 120,562 61, ,745,696 - Listed unit trusts 20,429 9, Total financial assets held at fair value through profit or loss 140,991 70, ,745,696 - Financial liabilities Designated at fair value through profit or loss Derivatives - futures - - (58) Total financial liabilities held at fair value through profit or loss - - (58) An overview of the risk exposures relating to financial assets and liabilities is included in note Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 19

20 10 Receivables 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Dividends receivable 1, Interest receivable ,196 - GST receivable ,630 - Total receivables 1, , Borrowings The Funds each have a loan facility with its Custodian/Prime Broker, Deutsche Bank AG, pursuant to a prime brokerage agreement. Deutsche Bank AG has the ultimate discretion as to the amount to lend under each facility. Amounts drawn are repayable on demand. U.S. Equities Strong Bear Hedge Fund will not borrow for the purposes of leverage, it will use leverage as a central part of its investment strategy. It will do this through the use of S&P 500 futures to obtain a magnified (or geared ) short exposure to the returns of the U.S. share market (as measured by the S&P 500 index). As security for the performance of its obligations under the prime brokerage agreement in relation to each Fund, the Responsible Entity has granted a charge to Deutsche Bank AG over the relevant Fund's assets held by Deutsche Bank AG. Deutsche Bank AG, as the loan provider, has certain rights, including the right to take possession of, and in relation to each Fund, sell the relevant Fund's assets if an event of default occurs in relation to the Fund. An event of default includes (i) failure by the Fund to make any repayment under the loan when due (ii) breach of a material term of the prime brokerage agreement that is not remedied within three business days after receiving notice of the breach (iii) insolvency of the Fund (iv) the Responsibility Entity ceasing to be qualified to be the Responsible Entity of the Fund (v) where the Fund's gearing ratio on any day exceeds the maximum gearing ratio specified in the PDSs and is not reduced to below the maximum gearing ratio by the next business day. Deutsche Bank AG is also entitled at any time to transfer to itself absolute ownership of a portion of the relevant Fund's securities having a value up to, but not exceeding, 100% of the loan amount outstanding from time to time (the "Transferred Securities Limit"). Deutsche Bank AG may deal with any assets so transferred in its absolute discretion and for its own benefit (including selling or lending those assets to third parties). The Fund will have an unsecured, contractual right to the return (at the discretion of Deutsche Bank AG) of either equivalent securities or the then current cash value of the transferred securities. If the Transferred Securities Limit is exceeded for any reason (such as market movements), the Responsible Entity will request that Deutsche Bank AG promptly transfer to the Fund sufficient equivalent securities or cash value so as to comply with the Transferred Securities Limit. 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Drawn borrowing 74,029 40,507 14,092-13,177,353 - Interest payable ,679 - Average interest rate 2.83% 3.41% 0.93% 0.00% 1.00% 0.00% The maximum gearing ratio that the Responsible Entity has adopted is 65%. Amounts borrowed in Geared Australian Equity Fund are in Australian Dollars. Amounts borrowed in U.S. Equities Strong Bear Hedge Fund and Geared U.S. Equity Fund are in US Dollars. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 20

21 12 Other payables 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Management fees payable ,995 - Expense recoveries payable Witholding tax payable Total other payables , (a) Financial risk management Objectives, strategies, policies and processes The Funds are exchange traded managed funds that primarily invest in a portfolio of securities listed on the local and global share markets as well as derivative instruments and cash and cash equivalents. The Funds' activities expose them to a variety of financial risks: market risk (including price risk, foreign currency risk and interest rate risk), credit risk and liquidity risk. The Funds use different methods to measure different types of risk to which they are exposed. Methods include sensitivity analysis in the case of price risk. The Funds' overall risk management programs focus on ensuring compliance with the Funds' PDSs and seek to maximise the returns derived for the level of risk to which the Funds are exposed. Financial risk management is carried out by an investment manager under policies approved by the Board of Directors of the Responsible Entity (the Board). The Board of directors of the Responsible Entity has overall responsibility for the establishment and oversight of the Funds' risk management framework. The Funds' overall risk management programs focus on ensuring compliance with the Funds' PDSs and investment guidelines. Compliance with the Funds' PDSs, Constitutions and Investment Guidelines are reported to the Board on a regular basis. (b) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other market prices will affect the Funds' income or the carrying value of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. (i) Price risk The Funds are exposed to securities and derivatives price risk. This arises from investments held by the Funds for which prices in the future are uncertain. Securities and derivatives are classified in the statements of financial position as at fair value through profit or loss. All securities investments present a risk of loss of capital. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Funds overall market positions are reported to the Board on a regular basis. The amount is borrowed at a variable interest rate plus a margin. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 21

22 13 (b) (i) Financial risk management Market risk Price risk Net assets attributable to unitholders include investments in equity securities and derivatives. Sensitivity analysis An increase of 10% at the reporting date of the market prices attributable to the assets held by the Funds would have the following impact on the Funds' operating profit/(loss) and net assets attributable to unitholders. This analysis assumes that all other variables remain constant. A decrease of 10% would have an equal, but the opposite effect to the amounts shown below, on the basis that all other variables remain constant. Change in equity price % +10% -10% Effect on net profit attributable to unitholders 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 14,099 7,091 (13,068) - 1,374,700 - (14,099) (7,091) 13,068 - (1,374,700) - (ii) Foreign currency risk The Funds hold monetary assets denominated in currencies other than the Australian dollar. Foreign exchange risk arises as the value of these financial assets denominated in other currencies will fluctuate due to changes in exchange rates. BetaShares Geared Australian Equity Fund (hedge fund) is not exposed to significant risks from movements in foreign exchange rates as the Fund has no financial assets or liabilities denominated in foreign currencies. The U.S Equity Strong Bear Hedge Fund holds S&P 500 futures contracts that are denominated in U.S. dollars, as such the Australian dollar value of the gains or losses on these positions is affected by exchange rate fluctuations. The Responsible Entity hedges such currency exposure with the objective of substantially offsetting the Fund s exposure to movements in the U.S. dollar. The Geared U.S. Equity Fund has exposure to the U.S. share market, but which is hedged to Australian dollars. Therefore these Funds are expected to have a minimal exposure to foreign currency risk. (iii) Interest rate risk The main interest rate risk for these funds arises from their cash holdings, and for Funds that employ borrowing, from their loan obligations, in that a rise in interest rates will directly impact the interest earned on long balances and payable on borrowings. Geared Australian Equity Fund and Geared U.S. Equity Fund borrow to gear their investment exposure and are therefore exposed to interest rate risk. An increase in the Funds' costs of borrowing resulting from an increase in interest rates or an increase in the borrowing rates charged by the Funds' Prime Brokers will have an impact on the Funds' profit from operating activities. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 22

23 13 (b) (iii) Financial risk management Market risk Interest rate risk The Responsible Entity monitors the level of gearing on a daily basis and makes adjustments to ensure that the maximum gearing ratio is not intentionally exceeded. This means that the Fund should not be exposed to investment losses that exceed its value, except where the value of the Fund's share portfolio were to fall by more than 35% in one day (assuming the Fund was geared to its maximum anticipated level of gearing, being 65%, on such a day). In any event, investors are not exposed to the risk of paying "margin calls" in market downturns, as all gearing obligations are met within the Fund. In connection with the Fund's loan arrangement, the Responsible Entity has granted security over the Fund's assets to the Prime Broker in the form of a charge. This means that the Prime Broker, as the loan provider, has certain rights, including the right to take possession of, and sell, the assets if the Fund defaults on the loan repayments or another event of default occurs. Certain Funds are exposed to interest rate risk on their cash holdings. Interest income from cash holdings is earned at variable interest rates. Investments in cash holdings are at call. The Funds' exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates are as follows: 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $ 1 $ 1 Cash balances which earn interest based on a floating interest rate ,674-5,156,416 - Loan balances that pay interest based on floating interest rate (74,029) (40,507) (14,092) - (13,177,353) - Sensitivity analysis Interest rates 10% higher (252) (66) 24 - (3,638) - Interest rates 10% lower 252 (66) (24) - 3,638 - (c) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Funds. (i) Settlement of securities transactions All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered low, as delivery of securities sold is only made once the broker has received payment. Payment is made once purchase on the securities have been received by the broker. The trade will fail if either party fails to meet its obligations. (ii) Cash and cash equivalents In relation to U.S. Equities Strong Bear Hedge Fund, the Fund maintains a net cash balance with its prime broker/custodian, Deutsche Bank AG. Deutsche Bank AG as at 30 June 2016 had a credit rating of BBB+. (iii) Other The Funds are not materially exposed to credit risk on other financial assets. 1 Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 23

24 13 (d) Financial risk management Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities. The Funds are exposed to daily cash redemptions of redeemable units. The Funds therefore primarily hold investments that are traded in an active market and can be readily realisable. The Funds may, from time to time, invest in derivative contracts traded over the counter, which are not traded in an organised market and may be illiquid. As a result, the Funds may not be able to quickly liquidate their investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer to counterparty. The tables below analyse the Funds' non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Less than Greater than Geared Australian Equity Fund On Demand 6 months 6 months Total $'000 $'000 $'000 $'000 At 30 June 2016 Distributions payable - 1,265-1,265 Borrowings 74, ,029 Due to brokers Interest payable Other Payables Net assets attributable to unitholders 66, ,649 Total financial liabilities 140,678 1, ,406 Less than Greater than On Demand 6 months 6 months Total $'000 $'000 $'000 $'000 At 30 June 2015 Distributions payable Borrowings 40, ,507 Interest payable Other payables Net assets attributable to unitholders 30, ,174 Total financial liabilities 70, ,312 24

25 13 Financial risk management (d) Liquidity risk Less than Greater than U.S. Equities Strong Bear Hedge Fund On Demand 6 months 6 months Total $'000 $'000 $'000 $'000 At 30 June 2016 Distributions payable Borrowings 14, ,092 Interest payable Other payables Financial liabilities held at fair value through profit or loss Net assets attributable to unitholders 49, ,534 Total financial liabilities 63, ,741 Less than Greater than On Demand 6 months 6 months Total $'000 $'000 $'000 $'000 At 30 June 2015 Distributions payable Borrowings Interest payable Other payables Net assets attributable to unitholders Total financial liabilities Less than Greater than Geared U.S. Equity Fund On Demand 6 months 6 months Total $ 1 $ 1 $ 1 $ 1 At 30 June 2016 Distributions payable - 59,089-59,089 Borrowings 13,177, ,177,353 Interest payable - 15,679-15,679 Other payables - 9,801-9,801 Net assets attributable to unitholders 5,654, ,654,016 Total financial liabilities 18,831,369 84,569-18,915,938 Less than Greater than On Demand 6 months 6 months Total $ 1 $ 1 $ 1 $ 1 At 30 June 2015 Distributions payable Borrowings Interest payable Other payables Net assets attributable to unitholders Total financial liabilities Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 25

26 14 Fair value measurements AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). Fair value estimation The carrying amounts of the Funds' assets and liabilities at the end of each reporting period approximate their fair values. Financial assets and liabilities held at fair value through profit or loss are measured initially at fair value excluding any transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statements of comprehensive income. (i) Fair value in an active market (Level 1) The fair value of financial assets and liabilities traded in active markets is based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. The Funds value their investments in accordance with the accounting policies set out in note 2. For the majority of their investments, the Funds rely on information provided by independent pricing services for the valuation of their investments. The quoted market price used for financial assets held by the Funds is the current bid price; the appropriate quoted market price for financial liabilities is the current asking price. When the Funds hold derivatives with offsetting risks, they use mid-market prices as a basis for establishing fair values for the offsetting risk positions and apply this bid or asking price to the net position, as appropriate. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. (ii) Fair value in an inactive or unquoted market (Level 2 and Level 3) The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. These include the use of arm's length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market rate at the end of the reporting period applicable for an instrument with similar terms and conditions. For other pricing models, inputs are based on market data at the end of the reporting period. Fair values for unquoted equity investments are estimated, if possible, using applicable price/earnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Funds for similar financial instruments. 26

27 14 Fair value measurements Fair value estimation (iii) Recognised fair value measurements The tables below set out the Funds' financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at 30 June 2016 and 30 June Geared Australian Equity Fund Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 At 30 June 2016 Financial assets Financial assets designated at fair value through profit or loss Listed equities 140, ,991 Total assets 140, ,991 At 30 June 2015 Financial assets Financial assets designated at fair value through profit or loss Listed equities 70, ,913 Total assets 70, ,913 U.S. Equities Strong Bear Hedge Fund Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 At 30 June 2016 Financial assets Financial assets held for trading Derivatives - futures (58) - - (58) Total assets (58) - - (58) At 30 June 2015 Financial assets Financial assets held for trading Derivatives - futures Total assets Geared U.S. Equity Fund Level 1 Level 2 Level 3 Total $ 1 $ 1 $ 1 $ 1 At 30 June 2016 Financial assets Financial assets designated at fair value through profit or loss Listed equities 13,745, ,745,696 Total assets 13,745, ,745,696 At 30 June 2015 Financial assets Financial assets designated at fair value through profit or loss Listed equities Total assets Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 27

28 14 Fair value measurements Fair value estimation (iv) Transfers between levels There were no transfers between levels during the period ended 30 June (v) Movement in level 3 instruments There were no investments classified as level 3 within the Funds as at 30 June (vi) Fair value of financial instruments not carried at fair value The carrying value of trade receivables and trade payables are assumed to approximate their fair values. Net assets attributable to unit holders' carrying value differs from its fair value (deemed to be redemption price for individual units) due to differences in valuation inputs. This difference is not material in the current period. 15 Offsetting financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The gross and net positions of financial assets and liabilities that have been offset in the statements of financial position are disclosed in the first three columns of the following table: Related amounts not offset in the Effects of offsetting on the statement of financial position statement of financial position Net amount of financial assets/ Gross amounts set (liabilities) Financial Stock and Gross amounts of off in the presented in the instruments cash financial statement of statement of (including collateral Geared Australian Equity Fund instrument financial position financial position non-cash collateral) pledged Net amount $'000 $'000 $'000 $'000 $'000 $'000 As at 30 June 2016 Financial assets - listed equities 140, , ,991 Financial liabilities - borrowings (74,029) - (74,029) - - (74,029) Total 66,962-66, ,962 As at 30 June 2015 Financial assets - listed equities 70,913-70, ,913 Financial liabilities - borrowings (40,507) - (40,507) - - (40,507) Total 30,406-30, ,406 Agreements with the funding counterparty, Deutsche Bank are based upon the Prime Broker Agreement. Under the terms of this arrangement, only when certain credit events occur (such as default), the net position owing to Deutsche Bank, after taking into consideration the assets held by Deutsche Bank, will be taken as owing and all the relevant arrangements terminated. The relevant Funds does not presently have a legally enforceable right of setoff, these amounts have not been offset in the balance sheet, but have been presented separately in the table above. 28

29 15 Offsetting financial assets and liabilities Related amounts not offset in the Effects of offsetting on the statement of financial position statement of financial position Net amount of financial assets/ Gross amounts set (liabilities) Financial Stock and Gross amounts of off in the presented in the instruments cash financial statement of statement of (including collateral U.S. Equities Strong Bear Hedge Fund instruments financial position financial position non-cash collateral) pledged Net amount $'000 $'000 $'000 $'000 $'000 $'000 As at 30 June 2016 Financial assets - futures (58) - (58) Financial liabilities - borrowings (14,092) - (14,092) - 63,674 49,582 Total (14,150) - (14,150) 58 63,674 49,582 As at 30 June 2015 Financial assets - futures Total Related amounts not offset in the Effects of offsetting on the statement of financial position statement of financial position Net amount of financial assets/ Gross amounts set (liabilities) Financial Stock and Gross amounts of off in the presented in the instruments cash financial statement of statement of (including collateral Geared U.S. Equity Fund instrument financial position financial position non-cash collateral) pledged Net amount $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 As at 30 June 2016 Financial assets - listed equities 13,745,696-13,745, ,745,696 Financial liabilities - borrowings (13,177,353) - (13,177,353) - 5,156,416 (8,020,937) Total 568, ,343-5,156,416 5,724,759 As at 30 June 2015 Financial assets - listed equities Total Rounded to the nearest whole dollar as the Fund does not meet the criteria set out in Instrument 2016/191 to round to the nearest thousand dollar 29

30 16 Auditor s remuneration During the year the following fees were paid or payable for services provided by the auditor of the Funds. Audit fees were borne by the Responsible Entity. KPMG 30 June June June June June June 2015 $ $ $ $ $ $ Audit and review assurance services Audit and review of financial reports 5,020 4,995 7,625 1,000 5,420 1,000 Audit of Compliance Plan 1,200 1,800 1, , Total remuneration for audit and other assurance services 6,220 6,795 8,825 1,500 6,620 1, Related party transactions Responsible Entity The Responsible Entity of the Funds is BetaShares Capital Ltd. Key management personnel The Funds do not employ personnel in their own right. However, the Funds are required to have an incorporated Responsible Entity to manage the activities and this is considered to be key management personnel. The directors of the Responsible Entity, which are key management personnel of the Responsible Entity, during or since the end of the financial year are: (a) Directors Executive Directors: David Nathanson (appointed 21 September 2009) Alex Vynokur (appointed 21 September 2009) Non-Executive Directors: Howard Atkinson (Appointed 2 March 2010, resigned 12 August 2015) Taeyong Lee (appointed 12 August 2015) Thomas Park (appointed 12 August 2015) (b) Other key management personnel There were no other persons with responsibility for planning, directing and controlling the activities of the Funds, directly or indirectly during the year. (c) Related party Funds' unitholdings Parties related to the Funds (including BetaShares Capital Ltd and other schemes managed by BetaShares Capital Ltd), did not hold any units in the Funds for the year ended 30 June 2016 and 30 June

31 17 Related party transactions (d) Key management personnel holdings At 30 June 2016 no key management personnel of the Responsible Entity held units in the Funds (2015: nil). (e) Responsible Entity fees and other transactions The Responsible Entity's fees are calculated in accordance with the Funds' Constitutions. The Responsible Entity s fees comprise of a management fee and (if applicable) expense recoveries (after taking account of GST and reduced input tax credits), which are calculated as a percentage of the gross/net asset value of the Funds and are disclosed in the statements of comprehensive income. Fund Basis for calculation Management fee Expense recoveries % % Geared Australian Equity Fund Gross asset value U.S. Equities Strong Bear Hedge Fund Net asset value Geared U.S. Equity Fund Gross asset value All related party transactions are conducted on normal commercial terms and conditions. The transactions during the year and amounts payable at year end between the Funds and the Responsible Entity were as follows: 30 June June June June June June 2015 $ $ $ $ $ $ Management fees expensed to the Responsible Entity 1,161, , ,758-79,189 - Management fees payable to the Responsible Entity as at the reporting date 180,915 39,129 48,786-8,995 - Expense recoveries expensed to the Responsible Entity 116,261 25,335 37,368-8,243 - Expense recoveries payable to the Responsible Entity as at the reporting date 14,669 3,173 7, Events occurring after the reporting year No significant events have occurred since the end of the reporting period which would impact on the financial position of the Funds disclosed in the statements of financial position as at 30 June 2016 or on the results and cash flows of the Funds for the year ended on that date. 19 Contingent assets and liabilities and commitments There are no outstanding contingent assets and liabilities or commitments as at 30 June 2016 (2015: nil). 31

32 Directors' declaration Directors' declaration BetaShares Capital Ltd present the Directors Declaration in respect of the following funds: Geared Australian Equity Fund U.S. Equities Strong Bear Hedge Fund Geared U.S. Equity Fund In the opinion of the directors of BetaShares Capital Ltd, the Responsible Entity of the Funds: (a) the financial statements and notes set out on pages 6 to 31 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and giving a true and fair view of the Funds' financial position as at 30 June 2016 and of their performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Funds will be able to pay their debts as and when they become due and payable. The directors draw attention to Note 2(a) of the financial report which contains a statement of compliance with International Reporting Standards. Signed in accordance with a resolution of the directors of BetaShares Capital Ltd. David Nathanson Director Alex Vynokur Director Sydney 27 September

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